China Stocks Crash Despite Major Government Intervention

No matter how hard the Chinese government tries to encourage more buying of stocks with new policies, Chinese stocks continue to fall. In fact, the Chinese government has just banned large shareholders from selling shares. As Richard Frost of Bloomberg Newsfirst reported (English text via google translate)

China Securities Regulatory Commission
[2015] No.18
Recently, the stock market fell irrational capital markets to maintain stability, safeguard the legitimate rights and interests of investors, is now on the relevant matters are announced as follows:
First, from now on within six months, the controlling shareholders of listed companies and shareholders holding more than 5% (or less saying the major shareholder) and its directors, supervisors and senior management personnel shall not reduce shares held by the secondary market.
Second, the major shareholders of listed companies and the directors, supervisors and senior management personnel who fails to reduce shareholdings in the Company, the China Securities Regulatory Commission will be given serious treatment.
Third, the major shareholders of listed companies and the directors, supervisors and senior management personnel in the six months after the reduction of shares from shareholders with specific measures, separately.

China Securities Regulatory Commission July 8, 2015

Equities analysts point out that Chinese markets have lost close to a fifth of their value over the last week or so, but this correction was preceded by a historic bull run that saw markets more than double in just over a year.

Of note, the main Shanghai index still is up over 70% from a year ago, but the millions of novice investors who piled in just before the peak are now holding shares that are worth less than they paid or selling for a large loss. This situation is a major blow to the government’s plan to transition the Chinese economy into a more consumer-oriented mode.

China Stocks

Wednesday meltdown in China stocks

The Shanghai index closed down an additional 5.9% on Wednesday and Hong Kong’s Hang Seng index was down 5.8% after plunging as much as 8.5% at one point. Analysts point out that while Greece’s debt crisis is clearly spooking global stock markets, the huge losses in China stocks are largely related to internal factors.

To emphasize the seriousness of the situation, several hundred firms have halted trading in their stocks over the last 48 hours in a market rout that has pulled down the benchmark Shanghai Composite Index by almost a third since early June.

Recent steps by Chinese government to stop China stocks slide

The government agency charged with regulating China’s largest state-owned firms announced on Wednesday it had told them to stop selling shares and to buy more “in order to safeguard market stability.”

Separately, and somewhat shockingly, the agency also ordered directors, executives and senior managers of publicly traded companies who have sold shares in within the past six months to buy them back and notified them they may not sell more shares. Moreover, the regulator noted they are required to purchase additional shares if the share price declines by over 30% the next 10 days.

China’s insurance regulator also announced the amount of assets Chinese insurers are allowed to invest in equities will be increased to 40% from 30%. Furthermore, the percentage of a single blue-chip company’s shares that an insurance firm can own will move up from 5% to 10%.

Finally, the Chinese central bank chimed in, saying it will provide “ample liquidity to support stock market stability” through margin lending. Of interest, the People’s Bank of China statement was announced on the highly watched state TV’s national midday news.